The Solution for U.S. video game studios

I just read a really long-winded editorial about something that is simple and has a simple solution.

Here is Exhibit A:

 https://www.gamedeveloper.com/business/why-is-it-so-expensive-to-make-games-in-the-united-states-

The problem with this article is that the author wants to exist in a vacuum . There is a galaxy of information and the author wants to stare at the sun. Yeah, it is right there and super bright so why not look directly at that?

Business doesn't operate in a bubble. Every business decision has considered opportunity costs. When capitalists put their capital into one bucket, they can't also put that same capital into another bucket at the same time. It isn't a quantum particle or peak Michelle Yeoh. When investors make a bet, they bet against all other opportunities. 

No amount of international exchange illusion will make the practice of funneling money to non-producers sustainable. Wages aren't a means of competing for occupation, they are a means of supporting the economy. Money is worthless until it is spent so spending less of it is the same as holding on to worthless paper. The solution is to find capable producers and spend as much of your money on capable producers as possible, to encourage the largest amount of growth as possible.

Money managers focus on how to make the most when the market is up and lose the least when it takes a dive. The idea that "cost-cutting for profit is what investors want" is a really out-of-touch way of thinking. Investors want stable valuation growth, not massive profit. When growth stops they take their money out.

That is what we are seeing now. Companies like Valve, Take-Two, Epic, Embracer, Saudi Arabia's public investment fund and Microsoft have pumped so much capital into every section of the video game industry that it is difficult for money managers to find studios that can give them a predictable performance. This lack of predictability is called volatility and money managers have very little tolerance for volatility. It's great if it gives them a win, but it can take them out of the market if it serves them a big loss. A great example is Roaring Kitty's assault of short-positioned money managers in the retail sector. 

Cost-cutting isn't a winning strategy and hasn't been. It is often confused with optimization methods like those that Toyota uses, but it isn't the same. Optimization is the sign of a company having enough breathing room to look in and fix bad habits created during the mad dash to marketability. It is like improving a manufacturing process so the production line produces less broken parts. Cost-cutting is like closing a manufacturing process because it produces broken parts. Forfeiting the opportunity to make more money does not give investors confidence.

That is where the video game industry is now. Buying a team in Poland to make a video game instead of buying a team in the United States isn't competitive. The goal is to have a Polish team making a game, a U.S. team making a game, a Japanese team making a game, an Indian team making a game, so on and so forth. The profit margin doesn't matter if a Polish team can't make a profitable game, so it is best to diversify investment into a portfolio of talented developers.

The idea that Americans need to be cheaper to compete flies in the face of actual evidence from professional athletes. It doesn't matter where a professional athlete comes from if their production gives them the ability to join a professional player's union. The union will then ensure their pay has some type of floor associated with their level of professionalism, with regards to their peers, without regards to relative cost-of-living. 

This is the simple solution that video games need. Let investors determine merit while unions protect workers. The union then allows prices to reflect merit and talent. Notice that this isn't how most unions function. It is unique to high-talent industries like professional sports. 

The problem with a typical union is exemplified by the U.S. University system. A tenured professor is almost impossible to remove, and the merits that allow them to attain their position as professor have nothing to do with their ability to produce professionals. Rate My Professor is an exercise in futility when removal from staff nearly requires a felony conviction. A union that protects workers in this way, without allowing the market to give a true measure of merit, ensures that investors, in this case Gen Z tuition payers, will exit the market in search of a product that produces a higher return on investment.

Allow the market the ability to find merit and they will invest in those with merit. Deny the market the ability to find merit and the market will refuse to invest. When the meritless consume the greatest amount of profit, those with merit stop producing, and natural market forces will correct the market. The video game industry has funneled too much money to the meritless because of it's desire to bury merit. 

Publishers are deliberately hiding information. They hide the cost of a video game and which part of a team spent the most money. They use non-standard names for pieces of production to hide which person or team is responsible for a specific part of the product. They hide entire teams. They use non-compete agreements and non-disclosure agreements in the name of protecting industry secrets, while on the same token announcing internal projects years before they are ready for the market. There is an incredible overall lack of fiduciary involvement. It is, by every standard, a sub-prime industry.

Would you bet on a sport without metrics, without any idea of what position a player actually plays or how they have performed in the past? Would you bet on a match if you only knew the team manager, but weren't even allowed to watch the game? Investing in video games right now is more volatile than betting on sports. Anything, by that measure, is far too expensive.